UNIT 4 : JOB COSTING

Terms
 cost pool - a grouping of individual indirect cost items
 cost-allocation base - a systematic way to link an indirect cost or group of indirect costs to cost objects
- ex. number of machine-hours

- cost object: job, product, or customer = also called cost-application base (X dept or another cost pool)
- based on cost-and-effect relationship, benefits received, or cost object's ability to bear the costs allocated to it
 source document - an original record (such as a labor time card on which an employee’s work hours are recorded)
that supports journal entries in an accounting system.
 job-cost record / sheet - source document used to record and accumulate all the costs assigned to a specific job,
starting when work begins
 materials-requisition record - contains info about the cost of direct materials used on a specific job and in a specific
department
 labor-time sheet - contains info about the amount of labor time used for a specific job in a specific department
 Electronic Data Interchange (EDI) technology - electronic computer link between a company and its suppliers,
ensures that the order is transmitted quickly and accurately with minimal paperwork and costs

Types of Costing Systems

1. Job-costing system
 used to accumulate costs separately for each p/svc
 cost object: job - a unit or multiple units of a distinct p/svc
 Each job generally uses different amounts of resources. The p/svc is often a single unit.
 ex. repair job, advertising campaign, construction project, specialized machine
2. Process-costing system
 cost object: masses of identical or similar units of a p/svc
 In each period, process- costing systems divide the total costs of producing an identical or similar p/svc by the
total number of units produced to obtain a per-unit cost
 ex. bank-check clearing, grain dealing, beverage production

Job Costing: Evaluation and Implementation

1. Identify the problems and uncertainties.
2. Obtain information.
3. Make predictions about the future.
4. Make decisions by choosing among alternatives.
5. Implement the decision, evaluate performance, and learn.
Job-Costing Systems
1. Actual Costing
 (1) traces direct costs based on actual direct-cost rates x actual quantities of the direct-cost inputs used
(2) allocates indirect costs based on actual indirect-cost rates x actual quantities of the cost-allocation bases.
 not commonly found in practice because actual costs cannot be computed in a timely manner
  actual indirect-cost rate = actual annual indirect costs / actual annual quantity of the cab
o reasons for using longer periods to calculate indirect-cost rates:
numerator reason (indirect-cost pool)
- The shorter the period, the greater is the influence of seasonal patterns on the amount of costs.
denominator reason (quantity of the cost-allocation base)
- To avoid spreading monthly fixed indirect costs over fluctuating levels of monthly output and fluctuating
quantities of the cost-allocation base.

2. Normal Costing
 (1) traces direct costs to a cost object by using actual direct-cost rates x actual quantities of the direct-cost inputs
(2) allocates indirect costs based on budgeted indirect-cost rates x actual quantities of the cost-allocation bases
 predetermined / budgeted indirect-cost rate = budgeted annual indirect costs / budgeted annual qty of the cab
o calculated for each cost pool at the beginning of a fiscal year
 overhead costs are allocated to jobs as work progresses
Underallocated and Overallocated Indirect Costs
1. Adjusted Allocation-Rate Approach
 restates all overhead entries in the general ledger and subsidiary ledgers using actual cost rates rather than
budgeted cost rates
 yields the benefits of both the timeliness and convenience of normal costing during the year and the allocation of
actual manufacturing overhead costs at year-end.
1. The actual manufacturing overhead rate is computed at the end of the fiscal year.
2. The manufacturing overhead costs allocated to every job during the year are recomputed using the actual
manufacturing overhead rate.
3. End-of-year closing entries are made. The result is that at year-end, every job-cost record and finished goods
record—as well as the ending Work-in-Process Control, Finished Goods Control, and Cost of Goods Sold accounts
—represent actual manufacturing overhead costs incurred.
2. Proration Approach
 spreads underallocated overhead or overallocated overhead among ending work-in-process inventory, finished
goods inventory, and cost of goods sold
 Materials inventory is not included in this proration because no manufacturing overhead costs have been
allocated to it.